Australia Monetary Policy

Australia: RBA keeps rates unchanged in October

October 1, 2013

The Reserve Bank of Australia (RBA) left the cash rate unchanged at the historic low of 2.50% at its 1 October meeting, a decision broadly expected by the market.

The RBA decided to maintain the rate as little change has been observed in most countries' currently-mild inflationary pressures and as the Australian economy has been growing slightly below trend over the last year. The RBA also acknowledged the recent improvement in household and business confidence indicators, although it warned that it is still too soon to judge how persistent the improvement will be. As a result, the RBA considered that the previously-adopted monetary policy stance "remained appropriate."

Consistent with its position in September, it seems that the RBA is still not worried about the inflationary pressures that could come as a result of the lower level of the Australian dollar (AUD). Despite a recent rise, the AUD is still 10% below its 2013 record high of 1.06 AUD/USD registered in April. In a context of a persistent current account deficit, monetary authorities believe that a low AUD, "would assist in rebalancing growth in the economy," by compensating for the progressive drop in domestic demand that is due to the recent decline in fixed investment, especially in the mining sector.

FocusEconomics Consensus Forecast panelists expect the cash rate to end 2013 at 2.43% and to rise to 2.64% by the end of 2014.

Seasonally-adjusted employment increased by 3,700 in October compared to the prior month, down from the revised 26,600 jobs created in September (previously reported: +19,800 jobs) and sharply undershooting analysts’ expectations.